S&P 500, HANG SENG, ASX 200, ASIA-PACIFIC MARKET WEEKLY OUTLOOK:
- Wall Street equities hovered near record highs with rising yields dampening sentiment
- 10-Year US Treasury yields surged to a 12-month high of 1.348% as inflation expectations grew. This may hint at higher debt servicing for firms and lower stock valuations
- US consumer confidence, Powell’s testimony, US core PCE price index and the RBNZ interest rate decision are in focus this week
Yields, Crude Oil, Pandemic, Economic Calendar, Asia-Pacific Stocks Weekly Outlook:
Asia-Pacific equities kicked off the week with a mixed tone after a muted session on Wall Street last Friday. The S&P 500, Dow Jones and Nasdaq Composite ended -0.19%, 0.00% and +0.07% respectively, with nearly 90% of S&P 500 constituents closing in the red.
Globally, more than 204 million people have received at least 1 shot of a Covid-19 vaccine, while the 7-day average of new daily cases has fallen to nearly half of the peak seen in mid-January. The US$ 1.9 trillion Covid relief package is heading for a House vote this week and the Biden administration is expected to reveal a multitrillion-dollar infrastructure plan in March. Against this backdrop, the reflation trade looks set to continue at the expense of a weaker US Dollar.
Sentiment appears to be underpinned by the progress of vaccine rollouts and prospects of new rounds of fiscal stimulus, but rising longer-dated yields have caught investors’ attention.
It is worth noting that the 10-Year US Treasury yield climbed to a fresh 12-month high of 1.348% on Friday as inflation expectations rose. Longer-dated yields are usually moving in tandem with inflation expectations, which has been propelled by rising commodity prices and reflation hopes lately.
Rising yields could dent stock market sentiment in several aspects. First, it may translate into higher debt servicing for corporates, as borrowing costs based on floating rates become higher. Second, higher bond yields offer an alternative to dividend yields, and this makes stocks less appealing compared to bonds on a risk-adjusted basis. Third, stocks’ intrinsic value is undermined by rising rates as future cashflows are discounted back at higher required rates of return. Therefore, any further significant rise in yields may derail stock markets’ upward trajectory and inhibit central banks from carrying out further easing measures.
US 10-Year Treasury Yield
Chart by TradingView
Australia’s ASX 200 index started modestly higher after falling 1.34% on Friday, led by materials (+2.09%), real estate (+0.47%) and information technology (+0.25%) sectors, whereas defensive-linked healthcare (-1.66%) and utilities (-0.86%) lagged. The index looks set to test the 20-Day Simple Moving Average (SMA) line at 6,804 for immediate support.
Hong Kong’s Hang Seng Index (HSI) is undergoing a market survey about expanding its constituents from 52 to 80 by including a more diversified portfolio of blue chips in the wake of Chinese technology listings. The survey results will be released on this Friday.
Traders are facing a busy week ahead in terms of macro events: US consumer confidence, RBNZ interest rate decision, US durable goods order, core PCE price index and Michigan consumer sentiment are in focus. Fed Chair Jerome Powell’s Congressional testimony on the 23rd of February will be closely watched for clues about future monetary guidance, in particularly surrounding inflation, stimulus and vaccine progress. Find out more from DailyFX calendar.
Crude oil prices fell 4.5% over the last two trading sessions, retracing sharply from a 12-month high as Texas’ oil wells gradually resumed production after extreme weather halted nearly 1/3 of America crude output. Rising geopolitical uncertainties as a result of the standoff between US and Iran over nuclear talks may pave way for heightened price volatility ahead. Technically, WTI crude oil prices appear to have entered a short-term correction with the MACD indicator forming a bearish crossover (chart below).
Chart by TradingView
Looking back to Friday, 6 out of 11 S&P 500 sectors ended lower, with 89.9% of the index’s constituents closing in the red. Consumer discretionary (-0.74%), communication services (-0.42%) and utilities (-0.26%) were among the worst performing sectors, while information technology (+0.17%) and financials (+0.11%) were up slightly.
S&P 500 Sector Performance 19-02-2021
Source: Bloomberg, DailyFX
S&P 500 Index Technical Analysis:
Technically, the S&P 500 index resumed its upward trajectory after returning to the “Ascending Channel” in early February. The overall trend remains bullish-biased, although another mild technical pullback appears to be underway. The MACD indicator has formed a bearish crossover, suggesting that near-term momentum has turned downwards. An immediate support level can be found at 3,893 – the 100% Fibonacci extension level. An immediate resistance level can be found at 3,995 (127.2% Fibonacci extension).
S&P 500 Index – Daily Chart
ASX 200 Index Technical Analysis:
The ASX 200 index remains in an “Ascending Channel” and is about to test the floor of the channel for immediate support. The overall trend remains bullish as suggested by upward-sloped moving average lines, but a minor correction seems to be underway. Holding above 6,730 – the 161.8% Fibonacci extension level – may pave the way for a rebound towards 6,935 – the 200% Fibonacci extension.
ASX 200 Index – Daily Chart
Hang Seng Index Technical Analysis:
The Hang Seng Index hit a strong resistance level at 31,080 (76.4% Fibonacci retracement level) and has since entered a consolidative period. Prices remain in the upper Bollinger Band, suggesting that upward trend remains intact. An immediate support level could be found at around 30,477 (the 61.8% Fibonacci extension). Breaking below this level will probably lead to a deeper pullback towards the next support level at 30,000 (the 50% Fibonacci extension).
Hang Seng Index – Daily Chart
— Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.